Defined benefit TFLS

Justso65

bjorn_toby_wilde said:

You haven’t mentioned how the pension increases once in payment and for me that’s another big factor.

If, for example, the scheme was fully index linked like a local government or NHS scheme then you would be giving up an inflation proof income. Personally I wouldn’t do that unless there was a very good reason to do it.

If, on the other hand you had a private sector DB pension like one of mine; 30% increasing by CPI capped at 5%, another 30% capped at 2.5% and the rest at the discretion of the company (who have never approved an increase yet), then it’s a whole different ball game. I took the lump sum on that one because the commutation rate was very good.

Those DB pension increase rates sound very similar to mine.  Especially the discretionary part that is in effect 0%.  You don’t happen to work for some large computer company by any chance.

All good advice.  I tend to think I’d be better with the higher pension and no TFLS.  I too like the higher guaranteed monthly income and have no immediate need for a lump sum.  

Thanks for all the input, 

JS

bjorn_toby_wilde

Justso65 said:

bjorn_toby_wilde said:

You haven’t mentioned how the pension increases once in payment and for me that’s another big factor.

If, for example, the scheme was fully index linked like a local government or NHS scheme then you would be giving up an inflation proof income. Personally I wouldn’t do that unless there was a very good reason to do it.

If, on the other hand you had a private sector DB pension like one of mine; 30% increasing by CPI capped at 5%, another 30% capped at 2.5% and the rest at the discretion of the company (who have never approved an increase yet), then it’s a whole different ball game. I took the lump sum on that one because the commutation rate was very good.

Those DB pension increase rates sound very similar to mine.  Especially the discretionary part that is in effect 0%.  You don’t happen to work for some large computer company by any chance.

All good advice.  I tend to think I’d be better with the higher pension and no TFLS.  I too like the higher guaranteed monthly income and have no immediate need for a lump sum.  

Thanks for all the input, 

JS

Retired now, but no it was Pharma.  I think a lot of big companies are similar to be fair.

etienneg

I agree that it depends very much on your circumstances and desires.

As has been mentioned, surviving spousal pension is important (if you have a spouce!) and also on what their situation is. For example, if you die soon after retirement and your spouce would receive the same pension thereafter (often 50% of your pension) but would also have a banked lump sum if you took PCLS, this may be the better choice if their own pension provision was small.

Taxation is also important. One situation is often not mentioned, which is if a larger pension plus state pension (plus inflation increases) could push you into the higher rate tax bracket, which would reduce the number of years needed to reach the break even point.

At the end of the day, and aware of all these alternative scenarios, go for whatever makes you feel most comfortable. Guaranteed income for life, especially with some kind of annual increments, is worth a lot in terms of peace of mind.

Caparn

If you used your TFLS to buy an annuity that rises with CPI it would probably buy a pension of less than £4k a year. Which makes not taking a TFLS look attractive.